What should you know about ELSS?

ELSS (Equity Linked Saving Scheme) helps the investor to save tax up to Rs 1.5 lakh under Section 80 C of the Income Tax Act. Though this equity saving scheme is riskier than other traditional forms of investment options available under the Section 80C of the IT Act, it can reward the investor for the extra risk taken. The investor can invest in this scheme with an investment horizon of 5-8 years, depending upon how they can digest the risk. If the numbers are to be studied carefully, ELSS schemes have offered the returns of 20.17 percent in the last five years and 12.02 percent in the last 10 years, a way ahead of traditional forms of investment.

Where the investor invests money?

As the name suggests, equity saving scheme is one of those schemes that have a major exposure towards the stocks of the domestic company. These schemes are professionally managed by the fund managers, and returns are volatile or market-linked.

Why do the customers prefer this equity scheme?

Beat the inflation-Financial advisors recommend the investors to remain invested in this equity scheme for a long-term, say five years or a more, to beat the inflation and attain the high returns. Moreover, most of the schemes offer benefits under Section 80C. Hence, they typically offer low returns that may not stand tall with the beating inflation rate.

Long-term wealth creation- ELSS is the best scheme if you are aiming to generate wealth in the long term. These schemes invest mostly in the stocks and it has been proven that these stock market investments offer superior returns as compared to any other asset class.

Lock in period-Every investment option under the umbrella of Section 80C comes with a mandatory lock-in period of 3 years, which could be extended depending upon your preference. ELSS has the shortest lock-in period of 3 years when compared to other traditional forms of investment like PPF, NSC, fixed deposits, etc.

You can enter into the universe of stocks– Many investors want to enjoy the high returns offered by the equity stocks but aren’t well aware of the procedure. ELSS is a gateway towards stock market investment. Many investors begin from ELSS and then start graduating to other equity saving scheme The mandatory lock-in period further helps the investors to stay afloat irrespective of the volatility of the stock market.

How to select ELSS scheme?

Creating a mutual fund portfolio is not a cakewalk; it includes defining of several complicated steps. To begin with, the investors need to shortlist the schemes with a good performance track record and then he/she has to pick the scheme which is in alignment with their risk appetite and investment objective. The task doesn’t finish here. The investor needs to monitor the performance of the scheme and take the remedial action is required.